Seven Ways Your Family Can Be Doubly “Eco” Minded (Economically and Ecologically) There is growing social pressure on all of us to do our part for the environment, but some of the pressure we feel conflicts with the economic pressure on our families. Here are some ideas that are both ecologically and economically friendly. 1. Reuse and repurpose everything possible. Your younger children should certainly have some new things, but hand-me-downs from older siblings are a great tradition that families have used for generations. Before throwing just about anything in the trash or even in the recycle bin, consider for just a moment if there isn’t another immediate use for that item—especially one that would allow you to avoid making a purchase. But, don’t save junk on spec! That’s a recipe for hording! 2. Donate your used stuff to a thrift store like Goodwill so that it doesn’t end up in the landfill and you’re not paying to store stuff you don’t use. If you’re honest with yourself, you’ll find a lot of stuff in your home that you never ever use. Don’t blow it by filling the space with new junk—just enjoy the openness created by having less clutter around the house, fewer shirts in the drawers and toys that have all been outgrown. 3. Sell your valuable old stuff on eBay or Craigslist (use the former for things that you can easily ship and the latter for things that would be expensive or difficult to ship). 4. Walk to the grocery store. Not only will it save on gas and protect the environment, but you’ll find you can’t carry nearly as much, forcing you to make wise decisions in the store. If you have lots of kids or live too far from the store, try organizing your errands carefully to cut down on the miles you drive. 5. Buy groceries in bulk (if you’ll eat them). Buying in bulk not only tends to cut the cost per unit down, but often results in less packaging per unit, reducing the landfill pressure. A big jar of peanut butter, for instance, may cost half as much per ounce as the small jar. In the landfill or in the recycling process, the one big jar will end up doing less damage than the set of smaller jars required for an equivalent amount of peanut butter. 6. Use Skype or a Hangout on Google+ to see far away friends and family instead of going to see them. (You can do this for business, too.) The energy saved by avoiding travel can be huge! 7. Take a train instead of a plane. Be careful, it isn’t always cheaper, and in the U.S. it is rarely faster, but a train ride could be a real adventure and is much greener than air travel. There are lots more ways to be green and cheap. What do you suggest?
Eight Tips for Looking Great on a Budget Looking great on a budget takes time and patience, but you can do it. Here are some tips to help: 1. Have a budget! You can’t seriously talk about looking good on a budget if you don’t have a budget. Know how much you’ll spend on clothes each year, plan your spending carefully to get the most from it and stick to your limit. 2. Buy clothes that fit. No one looks good in clothes that are too small—or way too big for that matter, though that is rarely a problem. Generally, it costs no more to buy clothes in the right size than to buy clothes a size or two too small. Clothes that are the right size will last longer. Don’t buy clothes that are too small as an incentive to lose weight. Buy clothes that fit as a reward for losing weight! 3. Shop seasonal sales. Nordstrom, famous for great clothes and high prices has two sales each year for women and kids, two separate sales for men, and one for everyone each year. If you need to look professional for work, save your money for these sales. Many other fine stores also have sales with big discounts on a scheduled basis. Check the web sites for detail. 4. Buy a few nice things. For work, church and other occasions when you want to look your best, buy a few nice articles of clothing rather than having lots of things from discount stores. The higher quality clothes should last longer and make you look better than having lots of outfits from discount stores. 5. Buy versatile clothes. Don’t buy any item of clothing that you can only wear with one outfit; look for clothes that you can mix and match. Five shirts and five pants that you can wear only in match sets give you five outfits. Five shirts and five pants that you can wear interchangeably will give you 25 outfits. 6. Take care of your clothes. You don’t need expensive furniture and cedar wood hangers for your clothes, but they shouldn’t be tossed in piles on the floor. Wash, fold and hang your clothes so you can see what you have, find what you want and protect it all. 7. Two words: machine washable. If you build your wardrobe around clothes you can wash and dry at home, you’ll typically spend less on the clothes, and much less on caring for them. You’ll also avoid the temptation to wear the dry clean only clothes too often (showing up to work in a wrinkled suit with ketchup stains—not good). 8. Shop thrift stores and consignment shops. Don’t buy anything in a thrift store you won’t wear; you’re just wasting your money. You can often find clothes for about 20% of the retail price in thrift stores, saving you 80%. Remember, once you wear the clothes you buy new in a department store, they’re used, too. Everyone can look good on a budget. You can also choose to spend a fortune and not look good. Follow these tips and you’ll always be pleased with your look and proud of your wallet.
Saving money on groceries won’t always save money in the long run A family’s grocery budget represents a meaningful part of the monthly budget. Efforts to save money should include a thoughtful review of spending on groceries, but there are some traps. Some of the healthiest foods are more expensive than some of the least healthy; in the long run, poor health will cost your family more than a healthy diet. Consider the following: Obesity: WebMD describes obesity as an “astronomical” epidemic. The resulting costs far outweigh any savings on groceries. Nearly one third of American adults are obese and about half that proportion of children and teens are overweight. Diabetes is epidemic in America with nearly 26 million people (7 million of whom are undiagnosed) and is increasing around the world. More than 90% of cases are Type 2, which is “can be prevented through healthy food choices, physical activity, and weight loss,” according to the Centers for Disease Control. Diabetes care can be extremely expensive. More importantly, the impact of the disease on individuals and their families can be devastating; complications from diabetes include blindness and amputations. Here are some tips to help you feed your family a healthy diet; they’ll save you money in the long run: 1. Skim Milk: skim milk has no empty calories, according to the U.S. Department of Agriculture; serve that as alternative to whole milk or even 2%. 2. Extra Lean Ground Beef: extra lean ground beef also has no empty calories; regular ground beef gets about one quarter of its calories from fat. 3. Skinless Chicken Breast: A skinless chicken breast has no empty calories. Battered and fried chicken wings get almost 80 percent of their calories from fat. 4. Wheat Bread: Wheat bread, which should be a staple in virtually every home, has no empty calories; a croissant has almost 50 percent empty calories. 5. Junk Drinks: soda pop, beer, wine and distilled spirits all provide no nutritional value for their calories. Money spent here is simply wasted. 6. Toppings: Butter, margarine, cream cheese and whipped toppings are almost completely empty calories. 7. Water: water from the tap in America is generally safe to drink, virtually free and is the healthiest option for most people. 8. Eating at Home: At home, you have the opportunity to influence your family’s eating habits more than when you eat out. If you provide food they love to eat at home, you can save money by eating out less. If it’s healthy food at home, you’ll save more money in the long run. By spending your grocery dollars wisely to buy healthier foods for your family, you can protect them from obesity and type 2 diabetes. You can also save money and help to keep your family healthy by providing healthy meals at home instead of eating out.
We’re not making it on two incomes; how can we make it on one? Many families reach a point with the number of children at home that one spouse would like to stay home to care for the children or other dependents, including aging parents. If you are in that boat and trying to figure out how to make it work, consider the following: Balance of Income: If you and your spouse earn similar amounts and one of you wants to quit, it will be difficult to make that work. Where you are sharing the financial load equally, it may be impossible for you to create an acceptable budget without both incomes. In order to make it work, the spouse who comes home may need to find a workfrom-home opportunity to close the budget gaps. If one of you earns less than half of the other, less than one-third of the total household income, you can make it work more easily than you might think. Natural Helps: There are a few natural helps that will emerge. The obvious natural help is likely motivating your desire to make the change—day care costs will be eliminated. In addition, the taxes on the income that goes away will likely be larger than you expect. The marginal tax rate on that income is likely higher than the effective tax rate on your combined income, meaning that you’ll pay less tax on the income you keep than you may be expecting. Cutting Back on Cars: You’ll need to make some other decisions to make your situation work. With two jobs, you have likely maintained two cars. Perhaps two nice cars. You may need to sell one of the cars. Cars eat up more money than you realize. Especially newer cars. Because they get good gas mileage and don’t have to go to the shop very often you may think of the newer car as the cheap one. The depreciation is silently eating you out of house and home. The insurance on the newer car is more than the insurance on an older car—it would cost more to replace. Look carefully at your cars to determine if one can go, and if so, which one should go. If you can get rid of a car payment, that will go a long way toward closing your budget gap. Discretionary Spending: Look at your discretionary spending patterns. If you have been living right up against it every month, there may not be much there to cut, but if you just think you’ve been frugal, a thorough review may reveal opportunities to reduce spending. College Savings: It may seem ironic to stay home with kids and have to decide to reduce your college savings each month, but in the long run your kids may be much happier to have a parent at home than to have a bigger college fund. The difference between a local college experience and going to an elite private school is primarily tuition and secondarily the fun of being away from home. There may be little surprisingly little difference in the value of the education. Retirement Savings: If you’ve been saving well for retirement, the money you have in savings will continue to compound. If you need to cut back on retirement savings, do your best not to stop altogether. A little something will compound over the years much more than nothing! Your Home: Moving is an expensive adjustment to make and should only be considered in extreme circumstances. If you really were struggling to make ends meet before
because you are “house poor,” that is your budget is tight because you bought a home you could barely afford, it may be the only way to make things work with one income. You can raise a healthy family just as well in 2,000 square feet as you can in 4,000 square feet. The kids may even thank you for not having so many chores to do on the weekends. But don’t move unless you are really going to downsize significantly—otherwise the cost of the move will overwhelm the financial benefits from a smaller home and mortgage. If you work at it seriously, you can almost certainly find a way to make life work on one income. Almost certainly, someone you know is living the lifestyle you want with one parent at home and one at work, living on the exact income you’ll have. Watch and learn.
What Does It Mean To Be “Tax Deductible” And Why Does It Matter? As you go through life, you’ll often hear references to things being “tax deductible.” All kinds of different things are. Understanding what is tax deductible could save you hundreds or even thousands of dollars each year. Being tax deductible means that you can deduct the expense (a charitable gift, your mortgage interest, business expenses, etc.) from your income on your tax return. If you give $100 to charity, that will not reduce your taxes by $100. It will reduce your taxable income by $100. If your marginal tax rate is 28% then you would save $28 on your taxes by donating $100—under certain circumstances. Many Americans have an effective tax rate of zero so a tax deduction is of no value. Consider the following examples to illustrate how tax deductions work. Charitable Contributions: A donation to charity is deductible (subject to some limitations that rarely apply) so long as your total deductions for medical care, mortgage interest, and charitable contributions (along with a few other categories) total more than the standard deduction ($12,750 for 2011 for most married couples filing jointly). In other words, if your total mortgage interest, charitable donations and other eligible expenses total less than $12,750 for most couples, there is no benefit to having tax deductible expenses. Mortgage Interest: Mortgage interest on your primary residence works just like charitable contributions to offset income if the sum of eligible deductions exceeds the standard deduction. Interest on a second home is generally not deductible. Mortgage interest on investment property is deductible on another form; it isn’t impacted by the standard deduction threshold. Medical Expenses: Medical expenses are only deductible to the extent that they are more than 7.5% of your income; you can only deduct the portion that exceeds 7.5%. They, together with charitable contributions and mortgage interest must exceed the standard deduction in order to be deductible. Business Expenses: If you have a small business you may deduct customary business expenses on your tax return. If you run a day care center in your home, for instance, you may be able to deduct food and other supplies used by the children in your care against the income you generate with the business. Under some circumstances, you can deduct depreciation on the space in your home devoted exclusively to the business. If the business loses money, you may be able to offset other income with the business losses (this won’t work if the IRS thinks your business is a hobby). Understanding these basic concepts won’t make it easy for you to file your own tax return—especially if you have a business. Knowing how tax deductions work, however, may help you to make better spending decisions during the year. If you are in a situation where you can deduct your charitable contributions, for instance, you now understand that charitable contributions are effectively cheaper for you because of the tax savings. Before you file your tax return, seek help form an experienced CPA.
Nine Tips For Selling Your Valuable “Junk” Online For most household items that you can no longer use but that have some useful life remaining, donating them to charitable organization like a homeless shelter or thrift store can be much easier. For your valuable goods, however, you may want to take the time and effort to sell them online. Here are some tips to help you maximize the sales proceeds for the items you sell: 1. Pricing: Before you sell it, look carefully for similar items for sale to determine what the fair and reasonable price is. 2. Big Items: If it is too big to ship, carry or move easily (like an old sofa or a bed) Craigslist.org works great. It is an online local classified advertising that is free for most listings. It is easy to use. (I generally price things low to get someone with a pickup truck to show up quickly with a friend to haul my old stuff away, saving me the trouble.) 3. Shipping Efficient Items: If your item is small and light enough to ship efficiently and especially if it is unlikely to break in transit, you can try eBay. eBay listings give you national and international reach for things that you can ship. What you can ship may surprise you. 4. Cars: There is quite a market for cars on eBay. If your car could be considered rare or collectible, you should certainly consider selling your car on eBay. If your car has graduated to clunker status, just trading it in may be your best bet. You can also list cars for sale on Craigslist.org (cheaper and easier than eBay). 5. Free Stuff: If you’re like me, there are some things that are so big and ugly you’d give them to anyone who’d show up to haul it away. You can list such things at Craigslist.org or Freecycle.org. 6. eBay: Because eBay tracks feedback and allows both buyers and sellers to rate one another, it is a good idea to buy a few things on-line before you try to sell something so that you can validate your good name. Buy cheap things; pay promptly. Request feedback if none is provided automatically. Give the seller feedback. Then, sell your least valuable things first and work up to something like a car where feedback would be key. 7. Craigslist: Craigslist is not eBay. There is no feedback mechanism. Do not accept anything other than cold, hard cash as payment from anyone from Craigslist. Ever. Do not hold things for Craigslist buyers; chances are very good you’d hold them forever. Tell everyone the same thing—the first one to show up with the cash gets the goods. 8. Good photos: Whether you are selling an item on Craigslist or eBay, you need good photos. You can get great photos with a cheap camera if you have great light. Try taking photos with and without flash, inside and outside and then choose the photos with the truest colors and the sharpest focus. 9. Don’t Lie: Don’t ever lie about your stuff. The cultural ethic on eBay will punish fibbers harshly. Provide complete and accurate descriptions of your stuff to avoid negative feedback. Remember, on Craigslist, someone who lives in your town will come to your home to give you cash; you’d hate to make a big guy with a pickup truck and a big friend mad because you weren’t honest about your stuff.
You can quickly and easily sell your old stuff on-line, converting old junk into cash. You can’t retire on the proceeds, but selling old junk for cash sure beats renting a storage unit for it!
16 Tips to Help You Spend Less Than You Earn Everyone understands the goal of living within their means, spending less than they earn and saving for a rainy day. Most people don’t do it. Here are some simple tips to help you break the pattern: 1) Live in a neighborhood where most people make a little less than you do so you won’t feel so much pressure to spend. 2) Contribute to your 401k at work so you don’t have a chance to spend the money you’re saving. 3) Use Mint.com, the free on-line budgeting system, to track your spending and help you manage your financial goals. (Don’t like Mint.com? Try another system.) 4) Give yourself an allowance for discretionary spending—in cash. When the cash is gone, stop spending—no credit cards! 5) Don’t shop when you don’t have money left in your budget; build your willpower by staying away. 6) Proudly drive the old car you’ve got and take care of it so it will last a long time. It may be that nothing hurts a budget more than buying a new car. 7) Walk to do errands that can be done by foot—stop laughing at yourself for driving two blocks for this or three blocks for that. 9) Eat out less; eat in more. 10) Have a meal preparation marathon once or twice a month, preparing meals in bulk that can be frozen and reheated later, saving money and time. 11) Look for cheaper hobbies or cheaper ways to enjoy the hobbies you have. Running is cheaper than biking (no bike, less gear). Golfing at the municipal course is cheaper than at the club. 12) Use coupons, watch sales, and shop smart to buy the things you need. 13) Don’t buy things you don’t need that don’t fit in your budget no matter how good the sale, no matter how big the discount! Define for yourself the difference between a “need” and a “want.” 14) Engage the entire family. Let everyone be a part of the plan to save money; everyone will benefit so let everyone share the sacrifice. 15) Don’t use credit cards, pay-day loans or other borrowed money to close the gaps in each paycheck. Borrowing will only make the next paycheck cycle harder. 16) Look for substitutes in the grocery store that save big dollars each month, but won’t impact your pleasure much. Think two-liter bottles of soda instead of cans, store brand products instead of the name brands. You end up with the same food and the same pleasure, but at a lower cost. Applying even a handful of these ideas consistently, over time will have a big impact on your budget.
How to Use Mint.com to Help Control Your Spending Perhaps you’ve heard of Mint.com or maybe you're just hearing of it now, but in either case you’re looking for help in controlling your spending. Think of this as a quick, step by step guide to getting instant help with knowing where your money is going in real time! Wouldn’t it be great to get an email when you’ve spent your limit for the month on meals and entertainment? Mint can do just that! Let’s get started: 1. Go to www.mint.com. 2. Complete the quick sign up process—it’s free. 3. You’ll then be prompted to set up all of your accounts. This will take a few minutes, but if you already do your banking and manage your credit cards on line, this should only take about one minute for each account. Mint.com will be doing the work before you know it. 4. Click on “Transactions” on the menu, which will display a list of your transactions going back about 90 days. 5. Sort by “category” by clicking on the column header for category. 6. Now, skim over the transactions looking for category errors. The big problems will be that many are labeled as “uncategorized.” Mint.com does this when it can’t figure out how to assign a category to a transaction. Depending on the number of transactions, this can take a while the first time. If you check back with Mint.com at least once a week (better daily) you’ll find it is no trouble at all to check and correct categories. 7. OK, click on “Budgets” to review suggested budgets for your discretionary spending. Mint.com makes budgeting easy and doesn’t require you to budget for every single category. It will prompt you to focus on your discretionary spending areas—those categories where you have the most control. 8. Just hover the mouse over each budget category and you can nudge the budget up or down to put it where you want it. When you exceed the limit, you’ll get an email from Mint.com alerting you. Hope that email doesn’t come before the middle of the month— that can make for a long few weeks trying to spend zero on, say, fast food for the last half of the month. 9. Next, click on “Goals” in the menu. You’ll be presented with a variety of goal templates, choose one to get started (if none of the canned goal templates fit your goal, click “Custom Goal.” 10. Follow the interview to set up your goal. In just a few moments, Mint.com will help you figure out how much you need to reach your goal, how much you’ll need to save each month and where to put the money you save! 11. Alright, click “Trends” on the menu and you can view graphs of your spending by category or over time. The longer you keep your information accurate, the more valuable the data becomes.
In just one hour, you can go from Mint.com neophyte to Mint.com mogul. If you don’t like it, you can try Quicken, which is software you install on your computer that is more powerful and, unlike Mint.com, it isn’t free.
Buy This, Not That! 16 Examples of Money Saving Tradeoffs Every day we face purchase decisions that at the end of the month we’ll have to face in the form of a bank statement reminding us of how little money is left. Here are some ideas to help you spend less: 1. Buy cell phone service from a prepay vendor like Virgin Mobile rather than one of the big two cell phone providers who charge twice as much for the privilege of paying 30 days later. 2. Buy a $5 bucket of balls at the driving range rather than $300 on a new driver—it may have the same effect on your game. 3. Buy the store brand rather than the national brand (after you double check the price to be sure you actually save money). 4. Buy a bag of old school popcorn you pop on the stove or in a popcorn popper instead of microwave popcorn. 5. Go see the last matinee of the day and have dinner afterward rather than having dinner before the movie and then paying full price for the evening showing. 6. Better still, rent the DVD and fix a nice dinner at home rather than seeing the movie in the theater and eating out. 7. Buy a $199 Google Nexus instead of a $499 iPad. Don’t let anyone tell you you’re not cool enough. 8. Read ebooks rather than print books; many ebooks are available for free! 9. Golf municipal courses rather than private courses. 10. Run instead of riding a bike for fun and exercise—it’s much cheaper. 11. Buy a car that is a year or two old rather than a new one (be sure to keep it as long as you would have kept the new one to get the full benefit). 12. Buy your designer clothes in consignment shops not department stores. 13. Buy what you need but don’t want (a purple tie for your brother’s wedding) at a thrift store when you can. 14. Buy the McDouble off the dollar menu rather than a Quarter Pounder with Cheese; you get almost the same taste, fat, calories and cholesterol for less than half the price! 15. Drink water in restaurants where soda is grossly overpriced and drink soda at home from two-liter bottles you buy for a buck on sale at the grocery store. 16. Buy a few nice clothes for work rather than piles of new cheap clothes; your boss and your colleagues won’t care that you look familiar in your favorite outfit if you look nice and clean.
Ten Ways to Feel Richer by Wanting Less No matter how much money we have, it never seems to be enough. This is true for the wealthiest people I know in the same way that it is true for most average folks. One thing I’ve seen, however, is that a few people are happy with what they have and as a result they manage it better. Those who are so focused on keeping up with the Joneses tend to frustrate their financial futures by buying too much stuff and spending too much on fancy vacations. Here are some tips to help you live life wanting less and enjoying what you have a lot more! 1. Volunteer in a food pantry or homeless shelter where you will have the opportunity to interact with people who have a lot less than you. 2. Don’t ever move to a neighborhood where most of your neighbors have more money, drive nicer cars, travel to more exotic places for vacation and wear nicer clothes than you do. 3. Seek out friends who have less money than you have, who’ll be happy to go to dinner at less expensive restaurants, who’ll want to catch a matinee with you rather than pay full price for a movie. 4. Take good care of the things you have so that you don’t feel so much pressure to replace them, especially your car(s). 5. Make regular contributions to your savings account and focus on the progress you’re making there so you are less distracted by fake savings opportunities in department stores —buying something you don’t need at 20% off is an 80% waste of money. 6. Donate some of your hard-earned money to a cause that you are passionate about to help put your discretionary spending into a different context (think Oskar Schindler slowly evaporating his wealth to save his Jewish friends—though you don’t have to give away all of your money to gain a greater appreciation for what you do have). 7. Join an organization that includes people from all walks of life, including some who have much less than you; you’ll find that you don’t feel nearly so much pressure to pull up to an event with a diverse group of people in a brand new car if some of the folks in the group don’t even own cars. 8. When you buy a home, have two goals in mind: find a home where you can live “forever” and that you can easily afford so you won’t be immediately tempted to move and so your home doesn’t make you feel so poor. 9. Walk somewhere you normally drive (especially if the round trip is less than a mile) to save money and remind you what a luxury your car really is—most of the people in the world don’t own cars. 10. Plan your next vacation as a service vacation, building homes for Habitat for Humanity or, if you can easily afford it, in a desperately poor country on the other side of the world where you can see abject poverty, do something to relieve it, and come home with an even greater appreciation for things you have.
What You Expect May Determine Financial Contentedness Everyone hopes to have a little more than they have now. It is human nature. Having reasonable expectations for your stage of life, for your retirement and your children’s education can have a big influence on how content you feel with what you have. Consider the following examples: 1. Your home: If your parents live in a 6,000 square foot home on a half-acre lot in a gated community and you think that you should be able to start out with the same thing, you are likely to be disappointed and frustrated. Find out where your parents had their first home. Go see it if you can. Adjust your expectations for what a first home should be. If your parents were both MDs and you’re a school teacher married to an artist just launching a career, you may need further adjustment to your expectations. Take time to really understand what lifestyle you can afford and work to align your expectations with what’s real. 2. Your car: Cars are crazy. Some people would rather own a nice car and live in a tent than drive an old clunker and have a home with a garage to park (or hide) it in. That means that you can find some unusual reference points, like the kid delivering pizzas in a BMW. You need to set your expectations for your car in the context of your personal priorities. If you want to own a home and that’s a stretch, you’ll probably be driving a modest car for the next several years. Own your choices and don’t be ashamed to drive an affordable car. 3. Your kids’ college: You may want to send your kids to college at Cornell, but Ivy League tuition isn’t cheap. Even if you have an above average household income, tuition, books, room and board at an Ivy League school may be out of reach—at least without piling on the debt. On the other hand, attending a state school near home may provide a much more affordable education and one that still opens doors of opportunity. Many people have figured out that an undergraduate degree from a good state school can still qualify students for elite graduate school programs. 4. Your retirement: You may want to retire at 50 and live between the beach and the golf course in Hawaii, but unless you have extraordinary good fortune, retirement will come closer to 70 and you’ll find it wise to move to a smaller home or condominium when you do. If you plan and prepare well for the reasonable retirement plan, you’ll be more likely to enjoy it when it comes. If you have dreams of extraordinary luxury and an early retirement, you might coax yourself into taking investment risks that not only don’t achieve the goal of providing for an early retirement, they could instead leave you without the resources to have the reasonable retirement you deserve. As you look at your circumstances, it is healthy to aspire to have a little more, to work and save and plan for the future. You may doom yourself to a perpetual state of disappointment if you expect things to be much better than you can reasonably expect. If fortune smiles on you, it will be easy to adjust to having more money; plan and prepare for less and you’ll enjoy life more.
Seven Ways Honesty Is Key to Frugal Living You and your family would like to live more comfortably and more frugally. One of the keys to successful frugality is honesty. These are just a few specific examples. 1. Honest with yourself: in order to live frugally, you need to live within a budget. This requires that you are honest with yourself about your spending. You can call a haircut “groceries” but you can’t feed your kids a haircut. 2. Honest with your spouse: successful frugality requires peace at home, which requires honesty between spouses. If you decide that you won’t spend more than $100 without the approval of your spouse, you have to be honest about it and hold yourself accountable just as you will hold your spouse accountable. 3. Honest with your employer: earning a living is vitally important to your lifestyle. Nothing will get an employee fired faster than a breach of trust. Whether it be petty things like not working a full shift, “borrowing” office supplies, fudging on a expense report or lying about who drained the coffee pot without putting a new one on, any of these can violate a trust that leaves your job in jeopardy. Be scrupulous. 4. Honest with creditors: when you borrow money, you need to accept that obligation as a literal, moral obligation to repay the money—not just eventually—but on the agreed upon terms. All your obligations are tracked carefully by those whom you owe and failure to pay on time and as agreed can have long lasting and painful implications. Don’t borrow money you can’t afford to repay. 5. Honest with merchants: as you go through your day making purchases of all sorts, you demand absolute integrity and honesty from the merchants where you shop. If the price tag says $19.99, you expect to pay $19.99. If the system pulls it up at $24.99, you’ll call them on the error. Let the street run both ways. If the merchant makes an error in your favor, let them know. Not because your kids are watching, or even because it’s good karma. Do it because it’s the right thing to do. 6. Honest with your children: kids have a difficult time understanding money and limits. They may not understand why you don’t have $10 for milkshakes on the way to the grocery store where you’ll spend $100 on groceries. Don’t lie to them. Explain honestly that as a family you have to have priorities and that in order to be able to afford important things, sometimes giving up less important things is required. Honest dialog with your kids will make them your allies in saving money. 7. Honest in reporting: as you seek to live frugally, to save for the future and maintain a happy home, you need to measure your progress. Be honest in the preparation of your reports. Keep track of where the money goes, how much you have in savings and what your assets are worth compared to what you owe. Keep track in an honest way so that you and your spouse can use the reports to better plan and organize for the future. Being honest with yourself and others regarding money will contribute meaningfully to having a successful home and family. Working as a family, communicating honestly with one another about money, and treating your employer and merchants with integrity will tip the scales in your favor in the long run.
29 Keys to Financial Happiness 1. Having enough money does make people happier than not having enough; having more money doesn’t make people even happier. 2. The key to financial happiness may be wanting less rather than having more. 3. Don’t spend more than you earn. 4. Don’t be afraid of hard work. 5. A college education is imperative in today’s “knowledge” economy. 6. Remember to save for the future; it will be here soon enough. 7. Teach your children the value of money; let them want something badly enough to buy it themselves. 8. Buy a house you can afford and that you’ll want to live in for a long time. 9. Don’t let what other people think of your car dictate what you drive; you really don’t care what someone thinks who would judge your worth by the price of your car. 10. Take care of your stuff. 11. Don’t be afraid of public transportation. 12. People who understand interest collect more than they pay. 13. Paying off your mortgage really is cause for celebration. 14. Credit cards are a convenient way to pay for things you want, but only if you actually have the money to pay the credit card bill. 15. Saving 20% on something you don’t need is an 80% waste of money. 16. Don’t torture yourself; shopping is torture when you don’t have the money to buy what you want. 17. Work is supposed to be work; that’s why they pay you to do it. 18. If it’s not raining, you better be saving, because the rain will come. 19. You’ve got to work for money until you can get money to work for you; keep saving and investing. 20. Make getting out of debt something you do and not just something you dream about. 21. Stop borrowing and start saving; you’ll thank yourself someday. 22. Family finances are a family affair; let everyone help to conserve and save. 23. You can be eco-wise by being environmentally friendly and economically minded. 24. You really will die without food and shelter; you really won’t die without Prada. 25. A new $300 driver may not do nearly as much for your drive as a $5 bucket of balls at the driving range.
26. Quality family time can happen just as easily camping in a National Park as at Disney World; choose the vacation that fits your budget best. 27. Did you babysit, deliver papers or mow lawns as a teenager? Do your kids? 28. Don’t compare your first home to the home your parents own now; compare your first home to their first home. 29. Money’s only real value is the good you can do with it.
Chapter 3 Your Car is Just Transportation
Seven Tips for Buying and Driving a Car You Can Really Afford Chances are you really can’t afford the car you’re driving. Most Americans spend too much on cars, reconciled that they must always have at least one and perhaps two (or more) car payments. If your car is worth more than you have in your retirement savings, you really can’t afford it. You can—and should—drive a car that doesn’t require you to borrow the money. Here are some tips to help you do just that: 1. Drive the car you have now for a long time. If you are still making payments on your car, plan to keep driving it for several years after you pay it off so that you can save up for its replacement. When you replace the car, limit your purchase to your savings plus the value of your trade-in, even if that means you have to buy a used car. 2. Take care of the car you have so you don’t have to buy a new one. Don’t defer maintenance; take care of problems while they are small. 3. Don’t try to keep up with the Joneses. It is always tempting to buy a new car, much more so when the neighbors all upgrade. Don’t let your neighbors decide when you need a new car; you decide when you have the money saved and want to make that purchase. 4. Remember that virtually every car ends up in the same place: the wrecking yard. Cars are not investments. They do not build equity—even if your husband says they do. They are productive but depreciating assets. Buy a car for the utility it provides and not the style it evokes. 5. Look for a car that is affordable to own and operate. When you buy a car again someday (see number 1. above) look for a car that is affordable. Intellichoice.com provides ownership cost estimates that can help you compare the cars you’re considering. Sometimes the cheapest car isn’t the cheapest. Sometimes the car with the lowest sticker price isn’t the car with the lowest total ownership cost. But be sure to buy a cute car you’ll be happy to drive for a long time! 6. Educate yourself before you buy a car. When you buy a car be sure to educate yourself thoroughly before going to see a dealer (consider seeing multiple dealers to get the best deal). You should have a good idea about the car you want to buy, the price of the options you want and especially the factory incentives available on new cars. A number of web sites, including MSN Autos, offer this information, some for a small fee. Arm yourself so that you don’t over pay for that new car. 7. The best car is no car. If you can eliminate a car from your garage by using public transportation, car sharing, walking, bicycling or carpooling, you will find yourself saving so much money you’ll never want to have a car again.
I Just Paid Off My Car; Should I Trade It In Now? Congratulations on paying off your car. There were probably days along the way when you worried the car wouldn’t last as long as the loan on the car, but it made it! You have taken a huge financial step forward. Now what? Follow this simple system and you’ll never have a car payment again! 1. Keep driving the car you have now. Take care of it. You want this baby to last for years. (If you haven’t told your car lately that you love her, now might be a good time.) 2. Keep making the car payment. What!?! Make the car payment into a savings account. Keep the money sacred for your next car. 3. Buy a “new” car. When the cash accumulated plus the value of your trade-in (which we know is going down every day) combine to buy you a car you’d like, one that you can drive comfortably for years to come (even if it’s a used car), go ahead and buy it. 4. Don’t borrow any money. When you buy your car, don’t borrow any money. If your savings is only $5,000 and your trade-in is only worth $5,000 either buy a $10,000 used car or wait for your savings to accumulate a little more. 5. Keep making the car payment. What!?! I know, I said this before, but you just bought a perfectly good used car for cash and you might think you could stop making a car payment. Don’t stop. Keep putting the car payment into your savings account month after month. In five years, you’ll have enough to buy a very nice used car or an affordable new car. 6. Don’t borrow any money. You’re beginning to see the pattern, aren’t you? Now that your car is paid off, you never have to have a car loan again. Just be disciplined enough not to buy a car you can’t afford to buy for cash. Let’s put some numbers to this example. If your car payment was $500, you can save $12,000 in two years—plus you’ll earn interest on that. If you had a five year loan on a new car, your car is likely about seven years old—still in very good shape. It may be worth $10,000. You can now purchase a car costing about $22,000. Yes, it may be a used car, but likely only a few years old. You can easily drive it for another five years. At the end of the five years, you’ll have $30,000 plus interest in savings and a car worth about $10,000 as a trade in. You’ll be able to purchase a car as nice—or nicer—than the one you bought five years ago—but this time for cash! Keep making your $500 per month car payment to yourself for the next seven years and the neighbors will really be impressed with the car you bring home. Chances are, however, when you start spending your hard-earned savings for your cars instead of the bank’s money, you’ll find you have less interest in the fancy car and more interest in the other things you can do with the money. You have kids who want to go to college. You want to retire. Following this system will put you in financial control of your life and empower you to better provide for your family.
How To Master Money So It Doesn’t Master You Interest is relentless, whether it is working for you or against you. You can make sure that the principles of compound interest are working for you. For instance, if you invest $1,000 each month, earning only 5% interest, you will accumulate a value of more than $830,000. On the other hand, if you borrow money at 5% and make monthly payments for 30 years, as with a mortgage, you can only borrow $186,000. Most of us will be required to borrow money in order to buy a home. That is wise, notwithstanding the experiences of the past five years. Homes do tend to appreciate in value over long periods of time (though there is no guarantee). More importantly, home ownership tends to help improve the stability of the home. That’s what you’re really about. Most people choose to drive cars that require car loans. It isn’t, however, that hard to buy a car for cash. A new car payment could easily reach $500. In just six months of saving that amount, you can buy a car that runs and will likely continue to run for several years with regular maintenance, but with no car payment and very little depreciation If you save $400 each month for your next car (spending the extra $100 on maintenance) after two years you’ll have put $9,600 into savings on which you’ll have earned some interest, so you’ll likely have $10,000 of cash, plus a $1,000 clunker for a trade-in. You’re not buying a clunker any more. Sure, you’ll be buying a used car, but likely one that you can drive with pride for five years or more. Along the way, you’ll keep saving and at the rate of $400 per month with a little interest, you’ll accumulate $25,000 of cash, plus your trade-in so now you can buy a new car if you want. Drive that for seven to ten years, and your next car will be one you’ll be excited to buy! This same principal and pattern applies to almost anything. It applies to your vacations (OK, you can’t trade in a used vacation), a new set of golf clubs for your husband, a new bicycle for you—just about anything that threatens to stretch your spending budget. The impact of saving for smaller purchases can be even greater than for your car because the interest you pay on credit cards—the way you borrow money for bicycles and golf clubs —is a lot higher than the interest rate on a typical car loan. Plenty of people let their consumer debt accumulate until it looks like a car loan and all they have to show for it is used stuff that would be hard to sell at a garage sale and some photos from vacation. You can take control of money by saving for things you want to buy instead of using credit cards and loans. If you do, you’ll find that money works for you and makes your life easier, not harder. You’ll be investing in stocks, bonds and real estate and planning for a wonderful retirement while your friends hold garage sales.
How Much Can You Really Save By Using Public Transportation? The average commute in America is about 15 miles each way, meaning that a typical commuter drives 30 miles every day to get to and from work. How much could you really save by parking your car and taking public transportation? Let’s do the math together. It may surprise you. First, we need to decide whether you’ll get rid of your car altogether or just park it while you’re at work instead of driving it. If you get rid of the car altogether, you’ll save a great deal more than if you park it. Let’s consider all of the costs of owning a car, presuming you drive a total of 1,000 miles per month (meaning you’re driving 400 miles per month on top of the commute and you’ll have to find some other way to cover those miles, too). If your car gets 30 miles per gallon, you’ll burn about 33 gallons of gas each month, which at $4 per gallon results in a cost of $132 per month. Car insurance varies wildly from person to person, but could easily be $100 per month, depending upon your car, your age and your driving record. Maintenance costs tend to be low for new cars and high for old cars, but can easily exceed $100 per month, remembering that one set of tires or new brakes will cost hundreds of dollars. The biggest cost of all is the cost of owning the car, really the depreciation. Roughly 80% of the car’s value will be gone after 10 years. The simplest way to think about this is that the car will depreciate approximately 15% each year. The average price of a new car in 2012 is a shade over $30,000. Depending on the model and condition, a five year old car might be worth only $13,000. The depreciation for the year will be about $2000 or $167 per month. If you have a car loan with a 5% interest rate and a $10,000 balance, the interest is costing about $40 per month. The total of all these costs would be $539, assuming you own a fairly average car or about $0.54 per mile. If your car is bigger, newer, fancier or gets worse gas mileage or if you have a poor driving record the cost could be much higher. What it may cost to use public transportation in your city should be easy to learn. In mine, commuting would cost $78.50 per month or less than $3.60 per day, meaning that I would save $460 per month if I could jettison the car and use public transportation instead. That would leave me plenty of room to use a car share, a taxi cab or even an occasional rental car for special occasions and still be money ahead. If you don’t sell the car, but park it, you can’t get rid of the depreciation, interest or insurance, but you can reduce the fuel and maintenance proportionally. Fuel and maintenance combine for an average of $0.23 per mile in our example (more if your car is older or larger than average). The fuel and maintenance costs per mile total about $7 per day for 30 miles of commuting. So, using public transportation at a cost of $3.60 per day would save you almost half or $3.40 per day—and it’s very green. If you have to pay for parking, the savings will add up even faster.
Walking Or Biking Can Save More Money Than You May Think! According to one source, 10% of automotive trips are for distances of less than one mile and more than 20% are less than two miles. If you were to walk or bike for some of these trips, you’d use your car less, save money, protect the environment and get some valuable exercise. Here are some ideas to help you walk more and drive less. 1. Make a list of the places you’ll walk rather than drive. You may need to keep track of where you drive for a while for this to work, but note not only those places where driving requires a trip of less than a mile or two, but also note where you can walk shorter distances than you can drive—many subdivisions feature bike and walking paths where you can’t legally drive, allowing you to shortcut a driving trip. (For instance, to drive to the grocery store is about 1 mile from my home, but the walk is almost exactly half as far.) 2. Measure the distance you’d drive to each of the places you decide to walk or ride. 3. Measure the distance you walk or ride to get to each of these places. 4. Keep track of the miles you avoided driving. If walking and biking allows you to get rid of a car, you’re saving more than 50 cents per mile; if you keep the car, you're still likely saving about a quarter (unless you have a plugin electric vehicle). 5. Keep track of the miles you walk or ride. Note that a typical person burns more than 100 calories per mile walked and up to 50 calories per mile on a bike. 6. Make walking and biking for your errands a key part of your exercise program. Instead of walking 30 minutes on a treadmill or riding an hour on your spin cycle, go walk or ride an errand instead. 7. If nothing else, the money you save on gas can go to something much more fun, like a donut or ice cream while you’re out and about. If you’re disciplined, the money can be saved for something much more meaningful and the calories burned can translate into a skinnier, healthier you. By systematically organizing your exercise plan to be productive you can save time and money and lose weight too—all while you do something real to help the environment!
Two Ways that Doing Nothing Makes You Big Money There are two ways that doing nothing saves you big money that can make all the difference in your life and retirement. The first is when you decide not to sell your car and buy a new one. Most people will do this dozens of times over their lives. We all know someone who buys a new car every year or two, perhaps even the same model in the same color. This is an expensive habit. Imagine this hypothetical, nonsensical transaction. Let’s say Bob has a year old blue car (pick your favorite make and model). Let’s assume that Bob would like a red one but is otherwise perfectly happy with the car. So Bob heads down to the dealer to trade his blue car for the red car (let’s assume they have a used red car otherwise identical to his on the lot). In theory, of course, the two cars are economically identical and Bob should be able to trade one for the other at no charge. That won’t happen. The dealer will offer Bob a warranty of some sort, financing, a fancy place in which to do the transaction, a free cup of coffee and perhaps a hot dog. Bob offers the dealer a used car that may or may not have problems he doesn’t disclose, if only because he doesn’t know they exist. For these and other reasons, Bob will get about 20% less for the trade in than he pays for the car he drives away. On top of that, he’ll pay registration fees, sales tax on the difference and anything else the dealer and the state can think of to charge him while he’s got his checkbook out. When he leaves, Bob has an economically identical car to the one he drove in with, but he’s giving up 20 to 25% of the value in transaction costs to the dealer. (Bob wouldn’t do much if any better selling his car in the newspaper, on Craigslist, eBay, or parked on the corner.) Of course, Bob would never make this trade—he’d paint the car instead. But the hypothetical transaction helps to highlight a key point. The transaction of buying a car is very expensive. By reducing the number of times you buy and sell a car, you are putting money in your wallet. When you buy a car, plan to drive it for at least seven years and preferably for ten or more. Given that buying a new car costs about $4,000 in transaction related expenses, if you reduce the number of times you do that in your lifetime from 25 to 10, you’ll save $60,000 over your lifetime—by doing nothing. The other time when doing nothing pays, is when you get the itch to sell your home and buy a new one. Some people move around town in a frantic hopscotch hoping to find the perfect home, the perfect neighborhood or the perfect school. Each purchase and sale costs about 10% of the value of the homes, easily $20,000 today. If you do that twice in your lifetime instead of ten times in your lifetime you’ll easily save $160,000—by doing nothing!
What You Need To Know About Your Car Insurance But Were Afraid To Ask Even if you have car insurance, your coverage may not be adequate to protect you and your family in case of an accident. Car insurance terms often seem like a secret code that you can’t understand and hope you’ll never need. There are two key parts to your insurance: liability insurance that provides financial help to other people when you cause the accident and collision and comprehensive insurance that covers your car from accidents, broken windows, theft, etc. There are a few key terms that you need to fully understand. Liability limits: Every state sets minimum limits to define how much liability insurance you need. The limits are reported as three numbers—your agent may have mentioned them to you when you bought your policy. In California the minimum limits are 15/30/5, meaning that you must have bodily injury coverage of at least $15,000 per person and $30,000 per accident, plus at least $5,000 for property damage. If you buy only the minimum required policy you may be in trouble. If you cause an accident with anything other than a 1972 pick-up truck with bolted on wooden bumpers, you’ll be paying for someone else’s car out of your savings account—or future earnings. If more than two people were in that car and needed more than $30,000 in care, again, you’ll be getting the bills. Deductibles: The deductible is the portion of the damage that you are required to pay. Deductibles don’t apply on the liability insurance; they only apply to you and your car. If you back your car into a concrete pillar in a parking lot (I use that example speaking from experience) you’ll be responsible to pay the deductible. The insurance company will be responsible for the rest of the cost of the repair. Saving money: Your policy gets cheaper as you retain more risk and ask the insurance company to take less risk. You can do this in two ways. You can raise your deductible or lower the liability limits. Raising the deductible. The ultimate way to save money is to not buy collision and comprehensive insurance at all. If you drive a clunker, as I’ve done at times over the years, you may be able to afford to assume all the risk of repairing or replacing your car if it is damaged or stolen. If you drive a nice car—anything but a clunker—you’ll want to have collision and comprehensive insurance, but you can choose to have a higher deductible. Lowering the limits. Many people buy only the state-required insurance limits. This is extremely risky. Not only are all of your current assets at risk, but so is your earning capacity. You can be forced to pay damages from your income for years into the future. Raising your liability limits above what most people in your state buy is good practice for anyone who has a good job or good savings. If you are focusing on frugal living and providing for your family, you likely have a home with equity, college savings and other
assets. All of these are at risk. Insuring yourself with unusually high limits is remarkably inexpensive—once you’re past 30—if you have a good driving record. The odds of your having a major accident with lots of injuries and expensive property damage is low. The insurance company understands this and they won’t charge you much for taking this risk off your hands. As a general rule, when buying insurance, it makes sense to pay others to take risks you cannot afford to pay yourself. Similarly, it doesn’t make much sense to pay someone else to take risks you can afford to take. So, raise your deductible to a level you can afford and use the premium savings to increase your liability limits to cover the risks you can’t afford. Talk to your insurance agent today to be sure you have the coverage you need.
Chapter 4 Your Home is the Centerpiece of Your Family’s Financial Future
Why homeownership should be your first family financial goal There are a lot of competing pressures on families to build a happy and healthy financial future, from cars to college and from retirement to a residence. Picking a priority can be frustrating. But there is a clear best among all of these financial goals: homeownership. Habit for Humanity, The organization that works with poor families to help them get into a home, has gathered available research to understand the benefits of home ownership. Children’s Academics: Owning a home is good for your children. Math and reading scores for children living in owned homes versus those living in rented homes were 9 and 7 percent higher, respectively for those living in owned homes. Children of homeowners are 25 percent more likely to graduate from high school. Children of homeowners are more than twice as likely to finish college. Behavioral Challenges: Renters’ children also face greater behavioral challenges. Most dramatically, renters’ teenagers are 40% more likely to give birth out of wedlock than children of homeowners. Children’s Future Income: Homeowners’ children earn an average of one dollar per hour more than renters’ children. Homeowners’ children are almost half as likely to end up on welfare as adults as renters’ children. Family Stability: While reports show that homeowners earn about twice as much as renters, it isn’t clear that owning a home causes that so much as results from that. It is conceivable that the stability created by homeownership fosters career development. Homeowners’ children are half as likely to grow up in single-parent households or be on welfare. Grandchildren: Homeowners’ children are almost 60 percent more likely to own homes themselves, providing an intergenerational benefit. Forced Savings: The financial benefits of homeownership are dramatic. The mortgage serves as a sort of forced savings plan; the home equity is difficult to spend, allowing families to accumulate meaningful net worth. While saving and investing in other assets could yield similar results for renters, most do not accumulate a similar net worth. Retirement Savings: By owning a home that you pay off before retirement, you provide yourselves with a linchpin asset for retirement. A free place to live will allow you to stretch your other retirement assets further, making your retirement more safe and secure. Happiness: Surveys show that homeowners are happier in their homes than renters. Community Roots: Homeowners stay in their homes an average of four times longer than renters. Perhaps that’s why homeowners are more likely to vote, to know who their congressman is or to be able to identify the head of the local school board. There are a variety of programs available to help low to moderate income families acquire a home. The Federal Housing Authority offers low down payment loans. The Veterans Administration offers loans with no down payment to qualified veterans. Many
states and municipalities offer assistance for acquiring a home. If you make owning a home a priority, it can become a reality.
Seven Tips For Buying Your First Home One of the most important decisions a couple will make is the choice of a first home. Choosing well can ensure good schools for the kids, stability in family and other relationships and opportunity. Choosing poorly can lead to financial disaster. Financing the home purchase properly is almost as important as buying the right home. Here are some tips to help you make the right choices: 1. Choose a home in a neighborhood where people generally earn what you earn or a little bit less. By doing so, you’ll find your neighbors drive cars like yours, struggle with the same budget questions you do, vacation where you do, etc. If you move to a neighborhood where everyone has a bit more money, you and your kids are likely to feel poorer not richer, constantly struggling to buy a car as nice as the neighbor’s car or to vacation like they do. Save yourself the drama. 2. Choose a home with convenient access to public transportation. You may not think you want to use it now, but if gas prices spike or your income changes, using public transportation may become the solution to an otherwise big budget problem. 3. Choose a home where you can walk to some of your most routine destinations, school, grocery store, and other conveniences. Having the option to walk for those errands could save you money, keep you fit and help protect the environment. 4. Choose a home that will be adequate for your family for a long time, perhaps forever. The secret weapon in finding a home that will last a long time is often an unfinished basement. That open space makes great storage today and in the future—when resources permit—you can turn it into beautiful finished space for more kids and/or more luxury. 5. Don’t borrow more than you think you can afford just because the bank says you can afford more. You know your spending habits and your needs. Don’t fudge with the bank so you can borrow more than they would otherwise allow; the bank’s underwriting guidelines are generous enough. Banks are in the business of making loans; they want you to qualify. Fit your home to the available financing. 6. Make the largest down payment you can. Making a down payment of less than 20% of the purchase price will increase the cost of borrowing the balance, so save and prepare well so that you can make the largest down payment possible. If you can comfortably put more than 20% down, do it. The smaller your mortgage, the better. 7. With mortgage rates at all-time lows in 2012, consider a shorter term mortgage. It wasn’t too long ago that folks thought that 8% was a reasonable mortgage rate. The payment on a 2012 mortgage at 3.75% for 15 years is the same as the 8% mortgage spread over 30. By putting yourself in a position to be mortgage free in fifteen years instead of 30, you create possibilities for your family that may far outweigh an extra 600 square feet of living space. The happiness you will experience in your home will have much less to do with the house than the people in it. If you buy a home that stretches you financially, you’ll add stress and anxiety to your home. If you buy a home you can easily afford and have virtually no risk of losing, you’ll invite peace, tranquility and stability into your home.
Four Tips to Help You Buy a Home You Can Really Afford It is challenging to remember when there has been a better time to buy a home. In most places in the United States, with Manhattan and a few other places as notable exceptions, home prices are still well below their peak values in 2007 after five years and mortgage rates are incredibly low—many mortgage professionals would have told you mortgage rates couldn’t get as low as they are in the fall of 2012. So, given that you’d like to buy a home, the following ideas will help you get the most for your money without using most of your money! 1. Ask your mortgage loan officer how much you can afford to borrow then commit to borrowing even less for your home purchase. It is tempting to buy a home that will stretch your finances to the absolute limit for some very good reasons, but that approach comes with some huge risks as the last five years have shown. 2. Find a home in a neighborhood where the average income is like yours or lower. If you stretch your way into a neighborhood where everyone earns more than you do, you’ll feel painful pressure to keep up with the Joneses in ways that are very expensive. If your budget only allows for summer vacation to the nearest national park and your neighbors are all vacationing in Hawaii or Europe, you’ll feel poor even if you’re not! 3. Stay in your home for a long time. If you can stay in your home for fifteen years or more, the mortgage payment will truly seem to get smaller. Even modest levels of inflation over long periods of time will tend to push the value of your home up, along with your income, making the mortgage look small. After fifteen years, the remaining balance on your home may be comparable to a typical new car loan, meaning you could pay it off in just four or five years if you really wanted to do so. The longer you stay, the cheaper it gets. Stay for thirty years and suddenly it will be free! 4. Maximize the down payment. When you buy your home, it is generally a good idea to put as much down as possible. It may require some sacrifice to get the down payment up to 20% of the purchase price, but that will not only reduce the monthly payment because you’ll borrow less, but also because you’ll avoid mortgage insurance (which adds no value to you or your home apart from allowing you to make a small down payment). If you have retirement savings in a 401k or IRA that can be used for the down payment, that may make sense if you are not yet 40 (so you have plenty of time to save for retirement) and you check with your tax advisor, you may be wise to use that to get your 20% down payment. Don’t take money from retirement savings to create a larger down payment than 20%—keep the money in your retirement account.
Seven Tips to Help You Qualify for Your First Home! Buying your first home is exciting, wonderful and scary. Your home will be a place where you raise your family, build life-long friendships and it will likely become a central part of your financial stability. Waiting for a mortgage underwriter to approve your loan can take several anxiety filled weeks. Here are some tips to help you succeed in getting your loan approved quickly. 1. Save for the down payment. You cannot borrow the down payment for most mortgage loans. For some, you cannot even accept a gift. Parents often offer to lend their adult children the money for a down payment. That can be problematic. If your parents are really willing to help, consider moving back in with them for a year while you save the rent money for a down payment. As a general rule of thumb, you’ll need about 7% of the purchase price of the home to qualify for a typical mortgage, including some closing costs and post-closing reserves. Get specifics from your loan officer. 2. Work on your credit. Before you even start thinking about buying a home, you should be working to establish a good credit record. You don’t have to borrow a lot of money to prove you have good credit. You’ve likely been paying rent and utility bills on time. That can be documented. (If you haven’t been paying on time start today!) Pay everyone for everything on time. If you can’t afford it, don’t borrow the money to buy it. 3. Sell your car. If you have a car with a loan, consider selling it to reduce your outstanding debt and, if possible, buy one for cash. If your car is nearly paid off, that is, by making the regular payments it will be paid off in less than a year from the time you will submit your loan application, you don’t need to do anything special. The underwriter should ignore the loan. Just commit now to keep driving the car long after it is paid off. (My wife and I sold our cars and bought an old clunker that we drove for 18 months in order to qualify for our mortgage.) 4. Pay off consumer debt. Reduce all of the debt you have as much as possible. It may be difficult to do this while you’re saving for a down payment, but the debt will work powerfully against you both before and after you buy your home. Get rid of it. 5. Consolidate and extend remaining debt. This step is not a substitute for the prior steps. Get rid of as much debt as possible. Once you’ve reached your limit and your debt is manageable, look for an opportunity to combine and extend any remaining debt to minimize the payment. You should complete this at least 90 days before you start looking for a home. Credit applications near the time of your mortgage application are a big red flag. 6. Before you find a home, get “pre-qualified.” Different lenders have different names for and offer varying assistance toward helping you figure out how much money you can afford to borrow, but regardless of the form it takes, this free consultation should give you a good gauge of what you can afford. Be sure that your lender reviews your credit report at this stage so that you both know before you start writing offers if there are problems there that could prevent you from getting approved for a mortgage. 7. Provide, don’t hide information. It is virtually impossible to hide financial information from the underwriters. Your entire life history is just a mouse click away. If there has
been a financial problem in the last seven years, disclose it early and provide a complete explanation for what happened and why it will never repeat again. Underwriters—not the loan officer with whom you’ll work directly—will make the loan decision and they will ask for all kinds of information. Even the loan officer may not understand why the information is being requested. Provide it quickly if you want your loan approved. By following these basic steps you’ll have prepared yourself well to buy a home where you and your family can build a happy life together.
Five Tips to Help You Save For a Down Payment One of the greatest financial struggles a family ever faces is making the down payment on a first home. A down payment of 5% is really just the beginning. In addition, there are closing costs that can easily total 2% of the purchase price. Add to that, the underwriter will want to be certain you have adequate cash reserves to make a couple of payments to protect you against the interruptions in your cash flow. If you are hoping to buy a $150,000 home, you’ll need $7,500 for a down payment, another $3,000 or so for closing costs and another $2,000 or so in cash reserves or a total of about $12,500. The following are some tips to help you save for your down payment or reduce the requirements. 1. FHA Loans: FHA Loans require only a 3.5% down payment. FHA loans are insured by the Federal Housing Authority. In some cases, interest rates may be fractionally higher, but for first time home buyers struggling with a down payment, any slight difference may be overwhelmed by the smaller down payment. Not all lenders offer FHA loans. If you are struggling with the down payment, be sure to work with a lender that can offer an FHA loan. 2. Seller Pays Closing Costs: As you work with your real estate agent, talk to her about having the seller pay your closing costs—even if you have to add them to the purchase price. In a “seller’s market” where sellers get their way on everything, this may not be an option. In a “buyer’s market” where buyers get their way on everything, you can probably offer less than asking price and still get the seller to cover the closing costs. 3. Use your IRA or 401k: The IRS will allow you to withdraw up to $10,000 from your IRA for a qualified first time home purchase. Both you and your spouse can do so. You may be better off, however, leaving your cash in the IRA. The mortgage loan underwriter will likely count the cash in your IRA toward the cash reserves. For that purpose, you’ll pay no tax or penalty. If you withdraw money from your IRA for your down payment you will be required to pay the tax on the withdrawal—but no penalty. Talk to your employer about borrowing from your 401k. If it is allowed, you’ll pay no tax and no penalty and you’re basically borrowing from yourself. 4. Sell your car. If you have two cars and can get by with one, sell the other one. If you can get some cash for the down payment and pay off the car loan at the same time, that can help you maximize your ability to qualify for the mortgage. 5. Mom and Dad. It is common for parents to help their adult children with getting into a first home. There are two basic ways in which parents can help. Obviously, parents may make a gift of cash for the down payment. Alternatively, they can invite you to live in the basement for a year while you forgo rent and accumulate a down payment. Even if you didn’t get this sort of help from your parents, you may consider helping your children. A successful financial launch into adulthood by purchasing a home can provide tremendous stability for a family over the years. By combining all of these strategies for reducing a down payment requirement and saving for it, the challenge may seem less difficult. Rather than needing $12,500, you
may be able to get by with just $7,500 or so. Selling a car, saving on rent, borrowing from the 401k may quickly combine to provide you with the down payment for your first home.
What Are The Closing Costs I Always Hear About With Mortgages? When you buy a home or refinance your mortgage, you should expect to pay a plethora of petty fees. Even if you can get the seller to pay them for you, it is a good idea to understand them. Some fees are associated with the mortgage and some fees are associated with buying or selling a home. Mortgage Related Fees Appraisal: Appraisal fees vary by market, but the cost is typically around $300 for a single family home. Credit report: Costs vary, but expect to pay up to $50. Lender’s title insurance: This is insurance that protects the lender in case there is a problem with the title to your property. In most cases this will be less than 1% of the mortgage or $1,000 per $100,000 of mortgage loan. Origination Fee: This fee may be negotiable. Typically, it is around 1%. Underwriting Fee: This fee, not always charged; it could be up to $750 and may be negotiable. Document preparation fee: This fee could be up to $150 and could be negotiable. Tax service fee: This is a fee paid to verify the status of property taxes. The fee is usually about $60 Flood inspection certificate: This is the fee to confirm whether or not flood insurance is required because the property is in a flood zone; expect to pay about $15 In addition to the closing costs above (the list is not comprehensive—there could be other costs), you may also have to pay some interest at closing for the rest of the month, in which case your first mortgage payment won’t be due until the first of the month after next. You may also have to pay a portion of the property taxes if the lender is requiring you to pay them with your mortgage. Finally, if the mortgage company is collecting taxes, they’ll be collecting property insurance as well and may want you to bring a portion of next year’s premium to closing—in addition to evidence that you’ve paid the current year. Home Purchase Related Fees Home purchase related fees in addition to the fees shown above (if you buy a home for cash, the fees above are avoided, otherwise you’ll pay the mortgage related fees above plus the home purchase fees): Closing fee: This fee is typically paid to the title company to handle the closing; expect to pay about $100 to $150. (Both buyer and seller will pay the same amount.) Wire fees: This is for the escrow company to wire money to the seller; expect to pay $10 to $25.
Federal Express fees: This is to cover the cost of sending documents between the parties; expect $15 to $35. Seller Related Costs If you are selling a home, these are the fees you can expect to pay on that side of the transaction. Real estate broker commission: The commission to the agent who sold your home typically costs six or seven percent of the purchase price. You may be able to negotiate the commission. Closing fee: This fee is typically paid to the title company to handle the closing. Expect to pay about $100 to $150. Buyer’s title insurance: This policy protects the buyer from defects in the title that you didn’t know about. Expect to pay less than 1% of the sale price of the home ($1000 per $100,000 of sales price). Federal Express fees: This covers the cost of sending the documents between the parties; expect to pay $15 to $35. By agreement, the seller is generally allowed to pay the buyer’s closing costs. Often, the seller will demand a higher price as a result, effectively forcing the buyer to borrow the money as part of the mortgage. As you can see, the total closing costs for a real estate transaction are large, with the buyer’s costs easily topping two percent of the purchase price (including the mortgage related costs). The seller’s costs are even larger, with the commission included. Selling one home and buying a new one can easily cost a family 10% of the average value of the homes they are buying and selling. Don’t ever fool yourself into thinking that you somehow make up that money. It’s really gone.
Six Insider Tips for Refinancing Your Mortgage As the former owner of a mortgage company, I know that refinancing your mortgage can be a lot of work and it can be complicated. Here are six tips to help you get the most out of your mortgage refinance: 1) Focus on the interest rate, not the payment. If you’ve been paying on your mortgage long enough, you can drop the payment materially just by starting over with a fresh 30 year mortgage, but that won’t accomplish much. 2) Remember that the principal payments you make with your mortgage payment are just like savings. The more the merrier. You’re just moving money from your checking account to your “home equity” account. 3) Home equity is hard to spend—and that’s a good thing! It is relatively difficult to access the equity in your home these days; it was a lot easier before 2008. Thank heaven for small favors. Be glad that the market is imposing some discipline on us, making us build up equity in our homes. Home equity tends to translate into more stable home environments, neighborhoods, and communities. 4) Choose the shortest maturity you can afford. Mortgage rates drop as the maturity or length of the mortgage gets shorter. In other words, a 15 year mortgage typically has a lower interest rate than a 30 year mortgage. Payments rise as maturity shortens because you pay more principal every month (see #2). 5) Don’t spend the money you’ll save until after you have the loan. The loan officer who helps you with your loan application will not be the person who decides whether or not your loan is approved. Almost certainly, the loan officer is more optimistic about your loan approval than the underwriter (who will decide) for this simple reason: the loan officer is paid on commission and he has no shot at a commission for a loan he doesn’t submit, but he has a shot at a commission on even a long shot mortgage application. 6) Do everything the loan officer asks you to do. Applying for a mortgage can be frustrating. The loan officer will sometimes ask you to do things that seem to make less sense than hopping up and down on one foot while rubbing your tummy. If you want the mortgage, do it anyway. Feel free to ask why you are being asked to jump up and down on one foot while you rub your tummy, but ask while you’re hopping and rubbing. Generally, such requests are really coming from the underwriter who may not have any direct communication with the loan officer so he may not even know why. Refusing to provide requested information will likely result in not getting your loan approved.
My New Job Is 40 Miles From My Home; Should I Move Closer To Work? Anyone who has moved a family recently can tell you they hope never to do it again. Memories fade and many do it over and over again. If you land a new job that is say 40 miles away, it may be tempting to move closer to work. Here are some considerations to help you decide: 1. Rent or own? If you are renting your current residence, the cost of moving is much smaller, and the opportunity to save enough to pay for the move is much more likely. If you own your home, it could take decades to save enough in transportation costs to pay for the move. 2. Car or train? If you will have to drive to your new job every day, the costs of the commute will add up more quickly than if you can take the bus or train most or all of the way. 3. Graveyard or 9 to 5? If you will be working normal hours, leaving the new job around five and can still be home for dinner every evening, the pain for your family may be small. On the other hand, if you work shift work that makes time with the family scarce already, you may be willing to make a financial sacrifice by moving to have more time with your family. 4. Fast or slow? Your commute being 40 miles long now could take anywhere from about 40 minutes to an hour and forty minutes, depending on the speed of the commute. The longer the time required for the commute, the more it will wear on you and your family. 5. Telecommuting, yes or no? Will your new employer allow you to telecommute some of the time? The less often you need to make the new, longer trip to the office the more sense it makes to stay where you are. 6. Tax deductible, yes or no? If your new job isn’t 50 miles farther from home than your old job, the move isn’t tax deductible in the United States. If your move is tax deductible, it makes much more sense than otherwise. 7. What’s best for the family? It is important in most circumstances to ask yourself what is best for the family, all things considered. That includes thinking about nonfinancial considerations. For some people, buying a new home is pure pleasure and they are always looking for an excuse. Don’t ignore the financial considerations in making your final judgment, but don’t overweight them either. Finally, consider some simple math. Selling a home and buying a new one could easily cost 10% of the value of the homes. With a typical home costing about $250,000 in many parts of the country, a move costs $25,000. That cost is not recaptured in any way ever. It’s gone for good. The cost to drive a car you’d own anyway is quite roughly $0.25 per mile. You’d have to drive 100,000 on your commute to make up for the cost of the move. If your commute is 60 miles longer per day, 300 miles longer per week, 6,000 miles longer per year, you’d need to work at the new job for about 15 years to save enough on gas and car maintenance to pay for the move.
As you can see, it is difficult to justify selling a home because of a long commute simply based on financial considerations. You may find that quality family time is so rare that it is justified in your case.
We Just Bought A New Home; The Mortgage Is Killing Us. Help! Congratulations on your home purchase and welcome to the world of home ownership. Almost every family who has purchased a home remembers those early years of homeownership that we thought we could never endure. Here are some tips to help get you through the lean years when folks sometimes say they are “house poor.” 1. Start in the garage. If you have a beautiful car in the garage for which you are making big payments, you aren’t house poor, you’re “car poor.” Sell the big, beautiful car and get rid of the payment. Buy a clunker for cash and drive that for a year or two. 2. Check your W-4. When you bought a home, you may have put yourself in a position to exceed the standard deduction on your income tax return because the mortgage interest is deductible. (If you have a modest home and you financed at very low interest rates, you may not.) Talk to your tax advisor to determine if your mortgage interest would allow you to file a new W-4 with your employer, changing the number of “allowances” you claim. Increasing the number of allowances will decrease the taxes withheld from your paycheck and also reduce the refund you’ll get after you file your return. 3. Sell the big boy toys. You know the old saying that the only difference between men and boys is the price of their toys holds some truth. If you have four-wheelers, RVs, expensive hunting and fishing gear, you may have to sell some of this. If you still have loans on any of this equipment or have credit card balances that can be reduced by selling it, this is a good step. It would be much better to sell an RV that gets used three weekends every year and one week every summer than to lose your home, right? 4. Cut back. In the first years of home ownership it is customary to find yourself cutting back on eating out, entertainment, vacations, hobbies, etc. Discretionary spending becomes a thing of the past for a time. 5. Ask for a raise. Your financial circumstances don’t really interest your employer. Your boss isn’t going to give you a raise because you bought a home you are struggling to afford. That said, if you haven’t had a raise in a while—and that’s a lot of people these days—and your company is thriving again, it isn’t crazy to make a thoughtful request for salary increase. 6. Get another job. Just after buying a home is a scary time to change jobs—changing jobs is risky. If you’re convinced you’re under paid, you can look for a higher paying job. If not, you may look for moonlighting opportunities that you can hold down just until your income at your primary job catches up to your expenses. 7. Sell the house. This should be your last resort. After the housing debacle of 2008-2010, mortgage lenders learned their lessons. They had allowed people all across America to buy homes they couldn’t afford on the hope that the home would appreciate and bail everyone out. If you just recently bought your home, the mortgage lender should have been convinced that you actually can afford to make the payments. If something has happened to your income or the lender somehow goofed and you really can’t afford the home. Sell it. Your down payment may be lost forever, but if you lose the house to
foreclosure, not only is your down payment lost but your credit is, too. If you can’t make it, sell it before they take it. Home ownership is a wonderful way to build a stable and happy home life for your family, giving you the opportunity to put down roots in a community, build lasting friendships and help your children succeed in school. Making home ownership a priority in your financial planning is wise. Almost always there is a way to make ends meet during those first few years of home ownership. Keep your head up. Lots of people have done it before you and you can, too.
How Do I Know Whether Or Not To Refinance My Mortgage? Mortgage rates have recently been so low that many in the mortgage industry never anticipated they could get so low, leaving many wondering whether it is time to refinance the mortgage (again). There are a variety of considerations and few simple answers, but I’ll try to clear away as much confusion as possible to help you determine if you should refinance. First, you should assess whether or not your home is worth enough to support the mortgage you want. In order to qualify for the lowest cost mortgage, your home should be worth about 1.25 times the mortgage. If you have a $200,000 mortgage, your home must be worth $250,000 to get the lowest cost mortgage in terms of interest rates and fees, including mortgage insurance. Generally, you can’t refinance your mortgage at all unless your home is worth at least 1.11 times the mortgage amount. (In some circumstances you can negotiate with your lender to modify your existing mortgage if the home’s value is lower than the mortgage balance and you have had trouble making the payments.) In order to get the best mortgage rates, you’ll need to have very good credit. Good credit starts with never making any payments late and includes not having too much debt relative to your income. Recent foreclosures, judgments and bankruptcies make refinancing almost impossible at low market rates. You’ll also need stable income; if you’ve had recent gaps in employment, you may need to wait to refinance. The best way to find out of you have good enough credit is to apply. The difference between the interest rate you’re paying now and the interest rate you’re being offered is also important. Some lenders will do a mortgage refinance at no charge to you, but they charge a higher-than-market interest rate. This could be a good idea if you plan to move in the near future as you’ll have invested nothing (but your time) in the refinance. If you choose a zero cost refinance deal, any interest savings you get will begin immediately. If you are confident that you’ll be staying in your home for a long time, it may be wiser to pay some fees (typically about 2% of the loan balance) to refinance as you should be able to find a lower interest rate than you’d get with a no-fee loan. If you choose to pay the typical 2% fee to get the best rate, you’ll want to make that up as quickly as possible. If your new rate will be two percentage points lower than your old mortgage, that is your old mortgage is at 6% and the new one will be at 4% or less, then you can make up the cost of the refinance in about a year. If the difference is just one percentage point, it will take about two years. You’ll have to decide what makes sense in your situation, but I wouldn’t refinance to save less than one percentage point. Keep in mind that there are some things you’ll have to pay at closing that aren’t, strictly speaking, costs of the refinance. Be sure to plan for things like funding the escrow account for property taxes and insurance and for prorated interest at closing. These are all costs associated with having a home and/or a mortgage and not associated with the transaction, but you may need to pay them sooner than you would otherwise.
Should We Really Buy A Home Or Just Rent? After the real estate collapse of 2008-2010, it would be easy to conclude that owning a home is a risk not worth taking. That may be the wrong lesson to take away from the Great Recession. A home is not a great investment. It won’t make you rich. If you hate yard work as much as I, you’ll curse your home on the weekend. But, over the long haul, owning a home provides some key advantages over renting that are not entirely financial in nature. There is nothing that would force renters to move—they could just keep renting most places. Similarly, homeowners could move around frequently. Statistics show, however, that approximately one third of renters move every year compared with about six percent of homeowners, suggesting that renters move about five or six times as often as homeowners. Staying in one place helps to create stability in your family. It encourages you to put down roots, to build relationships in your community with the schools, the soccer teams, churches and even the merchants in your neighborhood. Those relationships may prove to be invaluable in a crisis—a sort of insurance policy against the unforeseen and uninsurable risks. Over time, rent will tend to rise, approximately with inflation. Your rent is likely to eat away 25 percent of your income for as long as you rent. If you buy a home, your property value will likely rise approximately with inflation—not a great return, but better than nothing. At the same time, your mortgage payment will remain constant. If you compare two hypothetical families, the Rentsalots who rent and the Ownsahomes who bought a home, after a decade you’d see a fairly striking difference in their financial situation. Assume that The Rentsalots started out paying $1,000 per month in rent. After ten years, their rent would likely rise to about $1345 per month (assuming a three percent inflation rate). At the same time, the Ownsahomes bought a home with a $1,000 principal and interest mortgage payment, assuming a four percent interest rate. With a five percent down payment, the Ownsahomes would have paid about $220,000 for a home with a mortgage of just under $210,000. After a decade, the Ownsahomes’ home would be worth about $296,000 and their mortgage balance would be down to $165,000 or so, meaning that their initial equity of just over $10,000 would have expanded to $131,000. The Ownsahomes aren’t rich, but they do have a meaningful amount of equity in their home now. The Rentsalots not only don’t have that equity, they’re now paying more each month than the Ownsahomes to rent their home. Of course, the Ownsahomes had to come up with a down payment. That couldn’t have been easy. If they had bought their home in 2007, they might well find that even after a decade they won’t have seen much if any appreciation because of the big fall in values that followed 2007. If something, say a lost job, had forced the Ownsahomes to move during the Great Recession they might well have regretted the purchase as they’d likely have lost their equity—and perhaps much more.
Home ownership should not be seen as a way to get rich. That argument would encourage you to do unwise things, like buying a bigger home than you need or can afford. Buying a home that you can afford can bring peace and stability over time. Don’t ask your home to make you rich. Ask your home for a safe place to raise a family and you shouldn’t be disappointed.
How To Party Like It’s 2042 Long Before Then If you bought a home this year with a standard 30 year mortgage, you’ll make your last payment in 2042. If you’d like to celebrate the day you own your home free and clear of a mortgage before the 30 years are up, here are some tips to help: 1) Pay just 10% more each month on your mortgage and you can shave five years off the life of the loan, depending on your interest rate; 20% will shave nine years! Even 5%, just $50 on a $1,000 mortgage payment will cut three years off the life of a loan. (The higher your interest rate the more impact a little more money has.) 2) Remember that paying down the mortgage has much the same effect as putting money in the bank, except that you’ll effectively earn a higher interest rate. Of course, the equity you build in your home is harder to spend, but that’s a good thing! 3) If you get paid every two weeks, you’ll be getting 26 paychecks and only 12 scheduled mortgage payments. If you make one extra mortgage payment during the year, the effect is similar to number 1, above. Combined with number one, you could shave more than a decade off your mortgage. 4) If you made a down payment of less than 20%, you are almost certainly paying what is called Mortgage Insurance. As soon as two years have passed, if you increased your home equity to more than 20%, you can refinance your mortgage to eliminate the mortgage insurance. Of course, if rates are higher, there is no advantage, but if rates are also lower, you can create even more cash flow that can be applied to principal each month. 5) If your mortgage is more than two years old now, investigate a refinance today. Interest rates are low in the fall of 2012 and you may be able to afford a fifteen or twenty year mortgage right now without paying much more each month. Don’t fall to the temptation to start with a fresh thirty-year mortgage without committing to pay at least a little extra to shorten the term to at least what it is today. 6) If you get a bonus or an inheritance, even if it isn’t enough to pay off the mortgage, go ahead and make a big extra payment. You may want to alert your mortgage processor to apply it all to principal immediately and not to future payments over time. By paying down a lump of your mortgage today, more of your regular monthly payment will go to principal each month thereafter and your mortgage will be paid off years earlier. Paying off your mortgage really is a reason to celebrate. A generation ago, it wasn’t unusual for a family to literally have a celebration to burn the mortgage documents once they were completely paid off. Today, many families carry mortgages well into retirement and effectively find themselves slaves to their lifestyle. When you own your home free and clear you own your lifestyle—it doesn’t own you!
Chapter 5 Managing Your Career
I just got laid off. Now what do I do? There is little more traumatic thing in life than to be laid off. Although most people who are laid off have a sense of the possibility—even the likely eventuality—the actual event is never easy. If you are fresh in that position, read on! 1. Don’t panic. No one is going to eat your or your children. Almost certainly the worst that is likely to happen is far better than what you fear. As recommended in the book Learned Optimism, set aside time later in the day or in the week to sit and worry (don’t be surprised if you don’t feel the need to sit down and worry at the appointed hour— that’s the idea). 2. Start to work now. Your job search is your new job. Start right now. There is a lot to do. It should be months before it occurs to you to be bored, but you’ll likely have a job before then. 3. Make a financial assessment. Take the time soon to work out a new budget based on your available savings, unemployment benefits, severance package, spouse’s income and any other available income. Remember this is temporary. There are some things you can go without during this period that you would normally spend. You’ll also avoid some expenses you’ve had—payroll taxes will be a big one. Be sure to budget for continuing your health insurance—don’t leave the window open for this crisis to become a full on catastrophe. 4. Update your resume. It may have been a while since you updated your resume. Don’t worry. In just a few hours you can create a passable resume. Before you start sending it to prospective employers, send a copy to two or three of your most successful friends and family members for review. Not only will the feedback be valuable, they may have job ideas or opportunities waiting. 5. Organize yourself. You’re your new boss. Congratulations. You’ve been promoted. You need to hold yourself accountable. You’re going to send dozens—maybe hundreds of resumes out. You’ll want to follow up on each one in a strategic way. If you don’t have a good system for that, it will overwhelm you. JibberJobber.com offers a free or, to upgrade to the premium program, low cost service that will help you do just that. 6. Network. Optimally, you’ve already built a network of people with whom you have a good relationship. Reaching out to them will be second nature. If you haven’t built that network, it will be harder, but still vitally important. Put yourself out there. Virtually everyone has been (or will be) where you are and they know it. There is no shame. You have a lot to offer so offer it up. Don’t be discouraged when people are too busy for lunch —offer to swing by their offices for twenty minutes at their convenience. Not only is that easier for some people, but it eliminates the question about who buys lunch! 7. Tap your social network. You are almost certainly connected with a variety of people through Linkedin, Facebook, Twitter and other social networks. If not, start today. It’s actually fun. Be careful not to fritter away eight hours a day on social networking, but if you aren’t spending an hour each day, you’re not engaging enough. You can make a lot of progress in relationship building here and its generally free!
Being laid off is no fun. Let’s not pretend that this is a vacation. Unless you have a lot of money and it really has been a long time since you took a vacation, don’t treat this time like a vacation. You’ve got a new job looking for a job. With a focus on the task at hand, you’ll be back in the game soon.
How do I go from homemaker to the workforce? Many women take time out of the workforce to be at home with their children when they are young and then seek to return to the work force later. Having hired a number of such women, I offer the following tips to help you in your transition (these ideas will generally work as well for men who’ve been playing the role of a stay-at-home father): 1. Take heart. Don’t worry. You haven’t forgotten how to work nor are employers especially anxious about hiring you. 2. Build a great resume. After being out of the work force for a few years, you may want to hire a professional to coach you on preparing your resume. Shining the best light on your community involvement over the years you’ve been at home will be a key to having a resume that reflects your capabilities well. 3. Be confident. Whenever you talk to anyone about a position, exude confidence that you can do the job. Assume that people will want to hire you. 4. Start with former employers. It may have been a long time since you worked for a former company or boss, but start with those folks. In 2009 I hired a woman with whom I’d worked a decade earlier; she’d been home raising kids for that entire time. She was a great addition to the team. 5. Get involved. Chances are you’ve been involved in your school community with a focus on helping your kids. Perhaps you’ve been coaching teams or volunteering with the PTA. You need to apply that same spirit to the broader community, in places where you are likely to meet more people interested in hiring you. Join a professional association, service organization like Rotary or other club where you can meet successful people. 6. Work your network. Be sure to let your friends know you’re returning to work. You may not even know what all of the spouses of your PTA friends do, but some might be in positions to hire you. A friend from a volunteer organization can refer you as powerfully as a former colleague. 7. Work your social network. Your LinkedIn account may have cobwebs on it. Dust it off; freshen it up. Let your Facebook and Twitter friends know you’re returning to the work force and let them know exactly what you want. It isn’t helpful to tell people you want a job; tell them what job would be perfect. You’ll get more help not less with this approach. 8. Don’t be discouraged. Finding a job takes time. Make finding a job your job until you have a job. Get up and work at it with the same effort you’d work at a job. It won’t take long before you have something you want. Returning to the work force after a decade at home can be scary for anyone. The fact is, employers are always looking for talented and capable people. If you were employed before, you will be again if you want to be. Be patient and optimistic.